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Result Highlights

* AXSB’s Q4 FY21 had many pleasant surprises viz, headline loan growth accelerated significantly (from 6% yoy to 9% qoq, with 7% qoq accretion).

* The growth was pervasive across segments and products (sequential pick‐up in corporate and SME lending was heartening + disbursements in retail products stood substantially higher yoy).    

* Core fee growth far exceeded loan growth aided by an all‐round robust retail fee growth.

* Impressive core PPoP growth of 16% yoy (despite Rs1.6bn impact for refund of interest on interest).

* Material correction in Gross NPL ratio on the back of lower net slippages due to improved demand/bucket resolution and higher collections from recovery buckets.

Our view –

Stronger on growth and asset quality: Adjusted for catch‐up provisions on the commercial banking portfolio and full provisions made on security receipts investments, the annualized core credit cost stood at 1.2% for Q4. This depicts structural improvement and a sustainable trajectory reflecting various initiatives taken by the bank in recent years, such as focus on high‐rated customers across segments, tightening of underwriting, strengthening of provisioning policies, etc.

AXSB did not augment nor utilized its Covid buffer standing at 80 bps of loans; which implies a significant cushion for any potential impact on asset quality from the second wave of pandemic. With only minor tweaks in our growth and asset quality assumptions, we continue to expect sizeable improvement in return ratios from the current fiscal. The core bank trades at 1.6x FY23 P/ABV. We retain BUY with 12m PT of Rs825

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